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Discover posts weaker earnings, higher charge offs

Jeremy Simon

Credit card issuer Discover Financial Services reported a decline in first-quarter earnings, as the company suffered a loss related to the sale of United Kingdom credit card division Goldfish. Meanwhile, Discover said its domestic credit card unit experienced a 6 percent drop in pretax income amid a higher provision for loan losses — money set aside to cover loans that may go unpaid in the future.

The U.S. card business posted a 54 percent jump in loan loss provisions “due to higher net charge-offs and an increase in the reserve rate, reflecting recent delinquency trends,” the company said in its release. Discover’s chief executive, David Nelms, largely blamed the increased provisions on “U.S. housing and mortgage issues and a deteriorating economic environment,” challenges that are facing many consumers, as well.

Experts have already indicated that poor results for credit card issuers could spell less favorable rates and terms for consumers, particularly those with bad credit histories.

Despite the increase in provisions, CEO Nelms cheered Discover’s “continued solid growth in credit card sales, with appropriate growth in receivables.” U.S. card managed loans added 2 percent to $47.5 billion, mostly supported by a 5 percent rise in sales volume.

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